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It is an assumption scarcely questioned that the US is facing a ‘spectrum famine’. This notion underpins plans to open up 500MHz of additional spectrum over the coming 10 years, as part of the FCC’s broadband plans, and is eagerly reinforced by any vendor or carrier pushing technologies that will help to handle the mobile traffic explosion. The explosion is not in question, but is there really a shortage of spectrum to deal with it? One implication of AT&T’s plan to acquire T-Mobile USA is that, at least in the short term, spectrum values will fall, not usually the pattern when a commodity is scarce. And most carriers are investing heavily in techniques that will enable them to handle the data boom more effectively without huge new allocations being required – not just to save themselves money in auctions, but because they know the freeing up of new frequencies may come with unwelcome restrictions for them, and encouragement for new competitors.

Far better, for established carriers, to invest in spectrally efficient 4G, flexible base stations, Wi-Fi or femtocell offload, and ever cleverer packet core techniques, to make the most of the fairly substantial swathes of spectrum they already have (often bought very cheaply). Where more is needed, better to enter into sharing deals, or acquire smaller rivals – as AT&T has been doing for some years, snapping up a series of regional cellcos and now TMo (Verizon has done the same with Alltel and some smaller local CDMA players). This may be cheaper than auctions and does not open the cans of worms that the regulator may unlock, such as guaranteed bandwidth for new players, spectrum caps or license exempt bands. If the AT&T/TMo deal goes through, the big three operators will have sufficient spectrum to last for quite a few years, and it will be in their interest to lobby against new mobile broadband auctions. It will also, temporarily at least, depress the value of spectrum owned by anyone else, which also suits the big three at a time when they are not looking to offload their own frequencies.

AT&T is paying a high price for T-Mobile, and one motivation is certainly to secure its spectrum position for the foreseeable future. As Jamie Townsend of investment analysts TownHall Research said: “In our view, overall spectrum value will decrease due to this acquisition … Regardless of what AT&T ends up doing with its new spectrum portfolio, it is likely to be a smaller acquirer of other spectrum in the near term (1-2 years). Of greater significance is the loss of T-Mobile as a potential spectrum acquirer … Finally, to the extent that the future of wholesale networks such as Clearwire’s and LightSquared’s are brought into greater question by the loss of the biggest potential wholesale customer, the potential for either of these companies to fail and therefore put up their own spectrum for a fire sale, overall values will once again be diminished.”

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